The shock announcement by Councillor George Osborne in his July Budget to put an end to landlords claiming an annual wear-and-tear allowance on their rental properties has rocked the buy-to-let landscape.
Under the old rules, every landlord in the UK was able to claim a 10% allowance from their NET rent every year to allow for the maintenance of wear-and-tear issues in the property, whether said maintenance work had actually been undertaken or not.
While the removal of such a small part of landlord legislature seems like a trivial detail and is not set to come into effect until April 2016, research conducted by the National Landlords Association (NLA) has indicated that this is likely to affect a huge 46% of UK landlords when the changes are implemented.
However, it’s not all doom and gloom for landlords worried about the tax implications that this announcement may have—the Government has already announced a replacement wear-and-tear allowance legislation that will still allow landlords to deduct the costs they actually incur on replacing furnishings in their property rather than granting the allowance as a given.
Under the new scheme keen to maintain landlords’ current level of tax relief while still keeping the system fair, landlords will be allowed to deduct the actual costs incurred of replacing moveable furniture and furnishings, televisions, kitchen equipment, flooring, curtains and the like. However, unlike the previous system of allowance, landlords will not qualify for a yearly allowance for repairs and replacement whether these maintenance repairs have actually happened or not, as has been the case in the past.
While NLA’s head of policy Chris Norris has recognised that some landlords may see a minor reduction in the tax relief they are eligible for against their rental property, he does attest that this new legislation could be seen as a good thing for the rental industry at large: “The replacement system will allow landlords to deduct legitimate revenue expenses in the future”, which many hope will lead to more landlords using their allowance to make legitimate changes to their property to significantly enhance the living conditions of the tenant.
Another change that the new legislation will introduce is that this new tax break for the allowance of wear-and-tear will apply to all landlords owning residential developments of any kind, regardless of the level of furnishing in the property.
This legislative change is one of many to have shaken the buy-to-let market of late. However, if you use a designated lettings agent to look after your property on your behalf, they should be perfectly placed to inform you of any industry changes that may affect you as a landlord.
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